USD Found Some Reprieve, What's Next?

USD Found Some Reprieve, What's Next?

1 September 2017, 12:49

We are back from our holidays and warmly welcome you to the trading month of September. Despite the usual low liquidity during the summer months there was a clear trend in the market, namely the persistent weakness in the U.S. dollar. This downtrend became most evident in the currency pair EUR/USD which has surged to a fresh 2.5 year high at 1.2070 at the beginning of this week.

The Euro registered a series of new highs following the speeches of Yellen and Draghi at the economic symposium in Jackson Hole on August 25. Yellen failed to provide stronger policy guidance and did not touch on future rate hikes while Draghi refrained from talking the euro down. This was enough to disappoint investors at that time, who expected more from the two speeches. While the dollar’s downtrend is generally resuming, EUR/USD failed to close the daily bar above 1.20, a fact that opened the door for a bearish reversal that was seen on Wednesday and Thursday. The support at 1.1825 (lower trend line of the current uptrend channel) got taken out while the dip was used to buy euros at lower levels. We now may see another attempt from euro bulls to push the currency beyond the 1.20 handle but for this to succeed, certain conditions must be met, including weaker NFP data. However, if EUR/USD breaks below 1.18 a next support is seen around 1.1720.

EUR/USD Uptrend

The British pound traded most of the last month with a heavy bias on doubts that the U.K. and the European Union would be able to discuss a trade deal in October. This has weighed on the pound but the latest round of weakness may be doubtful. GBP/USD began to rally off its recent lows near 1.2770 and inched towards 1.30.

In shorter time frames we will focus on a sideways trading range between 1.3050 and 1.2770. A break above 1.3060 could lead to a follow-through of the bullish movement with higher targets at 1.3120 and 1.3220.

GBP/USD Daily Chart

Today, the U.S. August jobs report will be the main talking point. U.S. Job growth and wage growth are expected to slow and if the report proves to be weak the U.S. dollar could resume its recent slide.

The U.S. Payrolls Report will be released at 12:30 UTC and traders should prepare for higher volatility around that release.

As soon as the U.S. Labor Day (Monday) is behind us liquidity will return and participation levels will rise in markets. German elections on September 24 will likely draw focus as the vote draws closer. The euro has been granted some room to rally, but there are plenty of obstacles and catalysts for volatility just around the corner. The European Central Bank meeting on September 7 is the next big risk event on the calendar. The ECB is expected to announce the start of winding down its bond-buying, so euro bulls might be in the starting blocks for another round of euro strength but bear in mind that a shift in monetary policy at the ECB has been already priced in.

We wish you good trades!

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